Supreme Court rules that business sense should be applied in commercial contracts

03/11/11

The Supreme Court has unanimously overturned a decision of the Court of Appeal in their ruling in the case of Rainy Sky S.A and others v Kookmin Bank, restoring the order of the High Court.

The case concerned the correct construction of refund guarantees and is a landmark ruling in the question of interpretation of commercial contracts.

The key consideration as set out by Lord Clarke in his judgment is "the role to be played by considerations of business common sense in determining what the parties meant." The court found that it was appropriate for business sense to be applied and in ruling for the Appellant Lord Clarke said "the Buyers' construction is to be preferred because it is consistent with the commercial purpose of the Bonds in a way in which the Bank's construction is not."

The judgment is here.